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Excessive tax complexity hurts both small and large Canadian businesses: PricewaterhouseCoopers

37% of businesses' value goes to governments
TORONTO, May 7 /CNW/ - In the current economic crisis, Canada has been
acknowledged for its relative strength on fiscal performance and on financial
regulation. Canadian governments also continue to make strides in reducing the
burden of taxation on business investment and job creation. However, according
to PricewaterhouseCoopers' (PwC) Total Tax Contribution (TTC) study released
today, Canadian businesses are subject to the second highest number of taxing
points (295) behind only the US. Canada also has the second highest number of
taxes borne and collected (72).
"The survey results emphasize the critical role of large enterprises in
generating tax revenue for Canadian governments. Indeed, the results show that
37% of the annual cash value created by large businesses goes to governments,"
says Tom O'Brien, PwC Canada Tax Partner and author of the TTC study. "The
complexity and the cost of compliance affect competitiveness, and Canada faces
a major challenge on this front. In this year's survey, Canada's mix of
federal, provincial and territorial taxes ranks as the second most complex
among the major countries worldwide in which TTC studies were conducted. This
excessive complexity hurts large and small businesses alike."
The 2008 TTC study carried out in cooperation with the Canadian Council
of Chief Executives (CCCE), encompasses all taxes paid by a company as well as
all taxes collected by the company from its employees and customers on behalf
of governments. A company's total tax contribution is therefore a measure of
its total impact on government revenues.
The 23 respondents, representing some of the largest Canadian businesses
bore $4.1 billion in Canadian taxes in 2007. Federal and provincial corporate
income taxes were the most significant proportions of taxes borne at $1.5
billion and $0.7 billion. These amounts correspond to a contribution of 35%
and 18% of total taxes borne, respectively.
The other business taxes borne by participants totalled $1.9 billion in
2007. Therefore, for every dollar of corporate income tax paid, participants
paid a further $0.86 of other business taxes - primarily property taxes,
employment taxes and sales taxes.
Study participants collected taxes of $10.0 billion in 2007 on behalf of
all Canadian governments. For every dollar of corporate income tax paid by
survey participants, taxes collected were $4.55. For every dollar of taxes
borne, taxes collected were $2.44. The major taxes collected in Canada, as
identified by study participants, were income taxes withheld from employees,
excise duties, fuel taxes and PST.
This year, the 2008 TTC study was expanded to collect information on
taxes and other payments to government allocated by provinces, in response to
requests from various provincial Ministries of Finance. In addition to the 73
federal, provincial and territorial taxes, there are also municipal taxes on
property and other areas imposed by the many local governments throughout
Canada. Of total taxes borne by participants, federal taxes comprise 49% and
provincial and territorial taxes comprise 51%.
"Canada's multiple jurisdictions mean that a company operating from coast
to coast has 295 potential tax obligations," says David Stewart-Patterson,
Executive Vice President of the CCCE. "The sheer number of forms to be filed
creates huge compliance costs for businesses and an expensive administrative
and enforcement burden for governments. This complexity hurts the
competitiveness of large and small businesses alike."
According to the study, 78% reported $29.5 million of compliance costs in
2007, with an average cost of $1.6 million. The central tax department and
shadow tax department costs comprised 80% of total compliance costs.
Compliance costs for an individual company ranged from $75,000 to $6.1
million. Some of Canada's larger businesses incur costs in excess of $5
million annually complying with their tax obligations.
On average, companies spend 1,696 days (based on an eight-hour workday)
or have eight full-time equivalent employees dedicated to tax compliance
activities. Compliance time or an individual company ranged from 10 days to
6,672 days.
The TTC study makes it clear that reform is needed in at least two areas
- The number of business taxes imposed across the country, in
particular the number of smaller and less efficient taxes; and
- The harmonization of the base of similar provincial taxes-
recognizing that the provinces will continue to compete on rates and
thresholds.
Charts and full survey information is available for download by visiting
www.pwc.com/ca/ttc.
About PricewaterhouseCoopers
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance,
tax and advisory services to build public trust and enhance value for its
clients and their stakeholders. More than 155,000 people in 153 countries
across our network share their thinking, experience and solutions to develop
fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP
(www.pwc.com/ca) and its related entities have more than 5,200 partners and
staff in offices across the country.
"PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, an Ontario
limited liability partnership, or, as the context requires, the
PricewaterhouseCoopers global network or other member firms of the network,
each of which is a separate and independent legal entity.
About the Canadian Council of Chief Executives
The CCCE is Canada's most influential business association, composed of
150 chief executives and leading entrepreneurs from all major sectors and
regions of the country. CCCE members lead companies that collectively
administer $3.5 trillion in assets and have annual revenues of more than $800
billion.